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Hong Kong jewellery retailers Chow Tai Fook and Chow Sang Sang are being probed along with 11 mainland gold retailers and an industry association over manipulation of gold prices in Shanghai, People's Daily reported on its website yesterday.

The investigation is the latest action taken by mainland regulators amid increased scrutiny of business practices. Several foreign makers of baby formula have been investigated over the past month for possible price fixing, and drug maker GlaxoSmithKline has been accused of various economic crimes.

People's Daily said the investigation initiated by the antitrust bureau of the Shanghai Municipal Development and Reform Commission began in May this year and that 13 jewellery retailers and the Shanghai Gold & Jewellery Trade Association were involved.

Some of them have admitted that they "colluded in the price manipulation and hurt consumers' interest", the report said.

Chow Tai Fook, the world's largest jewellery retailer with over 1,800 shops in the mainland, said in a statement yesterday that the company had its own gold pricing mechanism and was not subject to any association.

"Chow Tai Fook's gold product prices are reasonably set, based on the cost of raw materials and various operating costs … and take the international gold price as its major reference," the statement said. "The prices of our gold products are uniform across the country and there are no regional differences."

A spokeswoman of Chow Sang Sang denied any price fixing at its 12 Shanghai shops, saying all the mainland shops and counters adopted uniform prices for gold products.

“We set the gold price every day based on the New York market close. The gold price is the same within the whole region of China and we don’t have district differences.”

A spokeswoman for Chow Tai Fook, which has a market value of US$11.9 billion (HK$92.3 billion), said that the company planned to issue a statement in response to the report later on Friday.

Chow Tai Fook’s mainland China revenue reached HK$30.3 billion in the year ended March 31, representing more than half of its total business. Eighty per cent of its China business was characterised as retail.

Shanghai-based jewellery retailer Lao Feng Xiang , which was also named in the report, could not immediately be reached for comment.

The news comes just days after Chinese authorities accused Britain’s top drug maker, GlaxoSmithKline, of bribing officials and doctors to boost sales and raise medicine prices there, while Belgian drug maker UCB said on Thursday it had also been visited by officials.

Pricing in the infant milk formula business is also under scrutiny and a number of international milk powder producers recently cut prices in China after the country’s top economic planning agency said it was investigating possible price-fixing and anti-competitive behaviour.

Shares in Chow Tai Fook fell as much as 6 per cent on Friday, while Chow Sang Sang shed as much as 5 per cent.

Shares of firms not named in the report also fell, with Emperor Jewellery & Watch tumbling around 5 per cent, and Luk Fook Holdings (International) falling as much as 5 per cent. The benchmark Hang Seng Index was flat in late afternoon trade.

Some analysts said pricing in the gold sector was generally transparent and it would be hard to fix prices.

“Gold products are priced by weight and prices are difficult to manipulate because everyone knows the market and the prices are very transparent. Also, if they mark up prices by too much in Shanghai, consumers will buy their products elsewhere,” said Steve Chow, an analyst at Sunwah Kingsway Research.

Gold posted a record quarterly fall from April to June, luring mainland Chinese buyers to Chow Tai Fook’s almost 1,800 jewellery and gold stores across China, Hong Kong and Macau.

Industry sources said it was market practice for major jewellers to agree on a daily price benchmark for gold via the jewellery association and Chow Tai Fook might have been found to have colluded with other players during this process.

The daily benchmark rates set by the association for gold products are between 13 and 15 per cent higher than international gold prices to account for processing and craftsmanship fees.

Chow Tai Fook earlier this month reported a 63 per cent spike in first-quarter revenue, with sales of gold products from its own stores soaring 78 per cent in the quarter ended June 30.